Sierra Vista Regional Med. Center v. Bonta'

• Decision Date: 19 February 2003
• Docket Number: No. C041202.,C041202.
• Citation: 132 Cal.Rptr.2d 9,107 Cal.App.4th 237
• Parties: SIERRA VISTA REGIONAL MEDICAL CENTER, Plaintiff and Appellant, v. Diana M. BONTA', as Director, etc., Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

132 Cal.Rptr.2d 9

107 Cal.App.4th 237

SIERRA VISTA REGIONAL MEDICAL CENTER, Plaintiff and Appellant, v. Diana M. BONTA', as Director, etc., Defendant and Respondent.

No. C041202.

Court of Appeal, Third District.

February 19, 2003.

Hooper, Lundy & Bookman and Patric Hooper, San Francisco, for Plaintiff and Appellant.

Bill Lockyer, Attorney General, James M. Humes, Senior Assistant Attorney General, Thomas R. Yanger and G. Mateo Munoz, Deputy Attorneys General.

NICHOLSON, Acting P.J.

Pursuant to an agreement, plaintiff hospital is reimbursed by the state for medical services it provides to beneficiaries of the Medi-Cal program. The agreement called for the state to reimburse plaintiff for providing inpatient care in its neonatal intensive care unit at a rate which was greater than the rate agreed upon for other services. The state determined plaintiff had wrongfully sought reimbursement for services which did not qualify as neonatal intensive care services. Plaintiff unsuccessfully challenged the state's decision administratively, then challenged the decision by means of a petition for writ of administrative mandate. The trial court denied the petition and entered judgment in favor of the state. We affirm the judgment.

STATUTORY BACKGROUND

1. Medi-Cal Provider Agreements

Through the Medi-Cal program, the Legislature intended to provide health care to the aged and other persons who lacked sufficient income to meet the costs of health care. (Welf. & Inst.Code, § 14000.) In 1982, the Legislature established a system by which the state Department of Health Services (Department) could contract with individual hospitals for the provision and payment of health care services through the Medi-Cal program. (Welf. & Inst.Code, § 14081.)

During the times relevant here, this new system required the California Medical Assistance Commission (CMAC) to negotiate "selective provider agreements" with hospitals. These contracts would establish the rates, terms, and conditions under which the Department would reimburse hospitals for providing inpatient services to Medi-Cal beneficiaries. (Welf. & Inst. Code, §§ 14082, 14082.5.) The CMAC had the "maximum discretion and flexibility in order to select among various methods of arranging for the provision of health services while achieving significant cost savings." (Welf. & Inst.Code, § 14081.)

Regulations to implement the Medi-Cal program are found at California Code of Regulations, title 22, division 3 (§ 50000 et seq.) (Medi-Cal Regulations). To participate as a provider of health services in the Medi-Cal program, a hospital must, among other things, be licensed as required by the Health & Safety Code. (Cal. Code Regs., tit. 22, § 51207, subd. (a)(2).)

2. Hospital licensing requirements

No person or organization may operate a health facility in California without first obtaining a license from the Department. (Health & Saf.Code, § 1253.) A general acute care hospital is a type of health facility "having a duly constituted governing body with overall administrative and professional responsibility and an organized medical staff that provides 24-hour inpatient care, including the following basic services: medical, nursing, surgical, anesthesia, laboratory, radiology, pharmacy, and dietary services." (Health & Saf. Code, § 1250, subd. (a).)

If the management of a hospital desires its facility to provide certain special services beyond the basic services authorized in the license, it must obtain a special permit to do so. (Health & Saf.Code, §§ 1251.5, 1252, 1255.) An "intensive care newborn nursery" is such a special service. (Health & Saf.Code, § 1255, subd. (f).)

The Department may not grant a license or a special permit unless the applicant demonstrates its hospital is operated in the manner required by statute and by Department regulations. (Health & Saf.Code, § 1277.) The Department's licensing regulations are published in the California Code of Regulations, title 22, division 5 (§ 70001 et seq.) (Licensing Regulations).

Plaintiff Sierra Vista Regional Medical Center (Sierra Vista) is licensed to be operated as a general acute care hospital. Sierra Vista is also authorized to provide intensive care newborn nursery services. Its nursery may have 10 intensive care bassinets. As authority to conduct this service, Sierra Vista's license simply reads: "NICU, ten bassinets."

One of the Licensing Regulations regarding the provision of intensive care newborn nursery services plays a pivotal role here. The contested regulation reads: "[a] ratio of one registered nurse to two or fewer intensive care infants shall be maintained." (Cal.Code Regs., tit. 22, § 70485, subd. (d).) Sierra Vista did not maintain this ratio.

FACTS

The parties adopt the statement of facts in the final administrative decision issued in this case. We will quote from it in relevant part. The Department and Sierra Vista entered into a selective provider agreement effective May 30, 1991. Sierra Vista agreed to render "inpatient services" to any eligible Medi-Cal beneficiary and to be reimbursed for its services according to the rates set forth in the agreement. During the majority of time relevant to this appeal, the agreement established the following reimbursement rates:

"(d) [F]or inpatient services provided to beneficiaries, the all-inclusive rate per patient per day of $720; except that

"(e) For obstetrical inpatient services provided to beneficiaries in Provider's obstetrics unit ... the all-inclusive rate per patient per discharge of $1253; and

"(f) For inpatient services provided to beneficiaries in Provider's Neonatal Intensive Care Unit [NICU] ..., the all-inclusive rate per patient per day of $864." (These rates subsequently changed to $740, $765, and $890, respectively.)

The agreement also required Sierra Vista to maintain complete records regarding its direct and indirect costs of whatever nature incurred in rendering inpatient services, even though Sierra Vista was not reimbursed based on those costs. It was reimbursed based solely on the rates established in the provider agreement.

On February 1, 2000, the Department completed an audit of Sierra Vista's contract payments and cost reports for the fiscal year ending July 31, 1997. The audit included reviewing the number of patient days incurred in Sierra Vista's NICU and the Department's reimbursement for all of those days at the higher reimbursement rate established in the provider agreement.

The auditor wrote: "Under [Sierra Vista's] policies and procedures in effect during the audit period, newborns, including Medi-Cal-covered newborns, admitted to [Sierra Vista's] NICU could receive services at four different acuity levels of care, designated Levels 1 through 4. The levels of nursing care afforded to newborns assigned to these acuity levels were as follows: Level 1-4:1 ratio [four newborns per one nurse]; Level 2-3:1 ratio; Level 3-2:1 ratio; and Level 4-1:1 ratio."

Based on Sierra Vista's staffing policies, the auditor determined some of the patients Sierra Vista had admitted into its NICU received inpatient services at the 3:1 and 4:1 nursing ratios, below the 2:1 ratio required by the Licensing Regulations to be maintained when caring for "intensive care infants." (Cal.Code Regs., tit. 22, § 70485, subd. (d).) The auditor determined Levels 1 (4:1 ratio) and 2 (3:1 ratio) were "subintensive care units" as defined in what she referenced as "HCFA Pub 15-1, Section 2202.7IIB (W/P IIB-3.2)."¹ According to the auditor, Levels 1 and 2 are considered part of general routine care, not intensive care or NICU under the Licensing Regulations and services provided at that level of care can be reimbursed only at the general rate.

The auditor asked Sierra Vista to provide information by which she could specifically determine which NICU patients received nursing care at Levels 1 and 2, and which received care at Levels 3 and 4. Sierra Vista was unable to provide sufficient information to make this determination.

As a result, "[t]he auditor reduced all NICU days billed [by Sierra Vista] to Medi-Cal to the general all-inclusive rate in effect on the dates of service. [Sierra Vista] was unable to provide logs, staff assignment sheets, or other reliable, auditable data which would have permitted identification of those neonatal intensive care days where care at acuity Levels 3 and 4 was provided. The total disallowance related to the NICU was $216,012. The accuracy of the mathematical computation of this amount was not contested."

PROCEDURAL HISTORY

Sierra Vista challenged the auditor's determination in an administrative appeal. It contended the level of care provided to all of its NICU patients, including that provided at the nurse/patient ratio of 1:3 and 1:4, was allowed under Health and Safety Code section 1255.5.² It also argued the level of care was consistent with the plain language of the contract requiring the Department to reimburse it at the higher rate for all "inpatient services" rendered in its NICU, and the reduction in payments was therefore invalid.

The administrative law judge denied the appeal. He first determined the Department had adopted a regulatory procedure called Program Flexibility, by which the Department could authorize exceptions to the Licensing Regulation's requirements. (See Cal.Code Regs., tit. 22, § 70129.) Because Sierra Vista made no showing it had been granted Program Flexibility, the judge concluded "the only services approved to be offered in its NICU are those which meet the requirements set forth in the applicable licensing provision, section 70485, ... services where the [nursing staff-to-patient] ratio is 1:1-2." The administrative law judge also determined the language in the contract was subject to the definitions provided in the Licensing Regulations. The Department adopted the administrative law judge's ruling as its final ruling.

Sierra Vista challenged the adverse audit adjustment and the...